Consumer-durable players ready for another round of price hike

Purvita Chatterjee Mumbai | Updated on January 09, 2018 Published on November 15, 2017

AC-makers seen passing on GST burden and rising commodity costs

Get ready to shell out at least 5-6 per cent more when you buy an air conditioner next summer. Unlike the FMCG sector, the GST council may not give any rate relief to consumer-durable companies – they have already been forced to hike their prices after being slapped a GST rate of 28 per cent.

Most of them are now poised for another round of price increase due to the escalating input costs of commodities such as steel, copper and plastic.

Both domestic and international durable players such as LG, Godrej Appliances and Mirc Electronics are facing a double whammy, and they have no option but to pass it on to consumers with further inflated prices across categories such as air conditioners, washing machines and refrigerators.

“We were forced to take up the prices of air conditioners and refrigerators by almost 4 pe rcent last month after GST, and are now seeking an MRP increase of another 3 per cent by January next year as the raw material and commodity costs for elements such as copper have increased. Penetration of air conditioners is already below 5 per cent and price escalation will further hamper the growth of the segment,” said Vijay Babu, Business Head, air-conditioner segment, LG India.

The air-conditioner segment is expected to get hit significantly as it uses copper as a commodity, which has seen the steepest rise in prices.

“Last year one tonne of copper was at $5,500 and it has now gone up to $6,800. Almost 70 per cent of copper is used in the manufacture of air conditioners, which also happen to have the lowest penetration compared to refrigerators and washing machines. We are now asking the government to reduce their GST rates to increase penetration for the category,” said Babu.

Considering LG has already shifted to the inverter segment of air conditioners, which leads to 50 per cent cost saving for consumers, it is hoping the government will see a rationale in reducing the GST rates in the future. “We are asking for GST rates to go down to 18 per cent from 28 per cent, as there is energy saving at 50 per cent, which should indirectly benefit the government,” said Babu.

Global scenario

Domestic consumer-durable players are also comparing the high GST rates with that of other countries.

“Even in the UK, the GST rates are at 17 per cent for the consumer-durable category. Refrigerators and televisions are not luxury but mass consumption categories in India today and the GST rates have to be more reasonable. Demand has to perk up further for these categories, which will help in generating employment and benefit the government,” said Gulu Mirchandani, Chairman & Managing Director, Mirc Electronics, which makes the Onida brand of durables.

Published on November 15, 2017
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